The Free Market, and the New Landscape

The president of the United States just announced to the country that the government will be injecting an additional $30 billion (on top of the $20 billion already thrown at the company) into one bankrupt company with headquarter s in Detroit. The cash is a gift of sorts, a deal worked out ahead of time, arranged with General Motors prior to the June 1 public announcement that GM would declare bankruptcy. This is all presumably part of an ingenious, grand scheme to help a major American industry emerge stronger after the ordeal.

Anyone watching the automotive industry melodrama over the past months, which started when the Big Three execs went before congress on the eve of the presidential elections last fall, and pleaded for taxpayer handouts as a reward for their incompetence over a period of decades, has been amazed. Of course, the mass media never pursued the real story, which was that the big three had–taking advantage of a routine recession and a change of political guard in Washington– embarked on a deliberate strategy of suppressing sales, driving their companies over a legal cliff, jettisoning debt and union contracts, stiffing bondholders, and generally getting government bureaucrats and federal judges to do the work they could not accomplish in the open market: aligning their costs, product offerings, and distribution mechanisms with market realities. I exaggerate–but it’s hard not to, when as a taxpayer I see one set of government policy for one sector, and different set for those of us who are asked to work in the actual free market.

This brings us back to this industry. On the Friday evening prior to the announcement of the GM bankruptcy, Electrograph Systems, Inc., one of this industry’s leading national distributors of AV gear, announced its “liquidation process.” Sam Taylor, who was until May 29th the president of Electrograph, summarized the news well. “While companies the size of GM and Chrysler make headlines in this economy, “ Taylor told me, “even greater pressures exist for companies smaller than those–who lack the kind of access to credit, or crisis financing, available in larger industry sectors.”

Indeed, this industry is characterized by a large number of small to medium sized, privately held companies. Even on the product side, apart from the Asian and a few European large publicly funded manufacturers, it’s really an industry of entrepreneurial players. So when a company grows rapidly, and sets out an ambitious agenda, it’s a more fragile equation than what drives companies in most U.S. industries. The risk is greater. And there are few safety nets.

It would have been nice if our national congress, or the executive branch, or our courts, were as magnanimous with the pillars of our industry as they have been with older industries that have been if not strangers then only distant cousins to innovation as a matter of corporate policy since roughly the end of the Vietnam war. Of course that’s too much to ask. Let’s just hope that one or more of the new players in the AV landscape can forge the same kind of value added service for the industry that Sam Taylor and his team at Electrograph were able to provide for years running.